Tax Abatement?

It is something to be concerned about, because not only is it uncertain hey will get the abatement (but it is pretty sure), what they may get is less of an abatement (or higher base taxes, which ends up sort of being the sane thing). It doesn't happen often: what happens more often is that in the later years taxes rise so the abatement doesn't cover as much of the burden as estimated and you end up paying taxes before you thought you were going to or pay higher taxes than the original estimate in the Offering Plan.

I don't think it's certain at all that it will happen. I was all set to close on one of those abatement buildings in Harlem and at the last minute, the deal completely changed. There was still some abatement, but it was dramatically altered. I was able to get out of the deal, but 'm not sure that that's always an automatic option.

After that, I realized that, for me, relying on an abatement to make my monthlies affordable or palatable was short-sighted. I'd basically be building in the need to sell at some point (as the abatement decreased) at which point the value of the apartment might be diminished since so many people buy what they can afford on a monthly basis. Of course, if real estate values drive up, there may be some compensation on that side of the deal.

I might be too conservative in my thinking, but I feel like all these abatements might cause problems for a lot of people as they start to run out.

abatements are are yet another of the time bombs ticking loudly for the ny condo mkt--my guess is that taxes in a number of buildings built in the last 5-8 years are getting prtetty high, such that monthlies in coops will ultimately be muuuuch cheaper...when combined with mtge resets etc it spells huge increses in cost to carry many of these apts---i owned in an abated condo for 2.5 years (sold in 2007 for a nearly 2x on a cash purchase) and was shocked at what projected taxes would ultimately be--that apt: great trade, better riddance!!
mooral: when pricing an apt use the ultimate projected tax as you calc carry---be sure that when you sell, your buyer will--funny how evasive brokers are about what abated taxes will ultimately be

Brokers aren't being evasive, they just don't know. They should say, "I don't know." And bkgirl, you question is not stupid at all!

I agree with everything said above. I would not include the tax abatement in my calculations regarding affordability.

Ubottom makes an interesting point about the ticking bombs in the condo market and the advantage of co-op monthly maintenance fees.

I've come to the conclusion that brokers dis co-ops because they hate doing board packages and losing control of the deal to the co-op board. I'm not sure anymore it's because condos are so much better investments. It's a case-by-case business judgement methinks.

{Manhattan real estate agent.}

It depends on with whom you, as a buyer, want to go into partnership. (That's effectively what happens when you buy a co-op or condo.) All kinds of riff-raff could leverage themselves into new condos, and did.

Not that co-op sponsors were all that punctilious when selling 20-odd years ago. They didn't have to be. The banks were the gatekeepers then, as co-op boards are now.

You should find out why the building qualifies for an abatement. For many new construction projects, it usually is an as of right benefit, so it is really just a matter of them filing the appropriate paperwork in a timely fashion.

Maybe it's my ignorance but I don't understand this argument about why abatements are ticking timebombs. Usually these benefits run for 15 years and a lot can happen during this period. Most people go into homeownership with the anticipation of market value increases, tax abatement or not. Also you could assume your income would go up over time, so the burden on the homeowner is minimized.

Hm...thanks guys! I am worried because construction is pretty much done and they don't have yet the preliminary approval forms yet...

I thought tax abatements are a thing of the past....didnt they faze out last year as there was a rush to get permits to qualify for the last of the 10 year abatements....

Having said that, is there anything worse for price distortion than these things....can you imagine sitting on an apartment in year 9 staring a massive tax bill at you right in the face next year and buyers demanding a bigtime haircut for you to sell....couple that with zero price appreciation and 6% in transaction fees and "oh boy"....

Sooner or later the punch bowl (gov't subsidies for this that and the other thing, low interest rates, higher taxes, etc) is going to be taken away so just be careful

When does an abatement begin?
421a? how long does that last?
I agree, abatements only serve the developer by allowing a lower initial monthly nut. This in theory allows the unit to be marketed at a higher price. Total time bomb.

When does an abatement begin?
421a? how long does that last?
I agree, abatements only serve the developer by allowing a lower initial monthly nut. This in theory allows the unit to be marketed at a higher price. Total time bomb.

hic-up

it's supposed to be a 25 year...

My abatement did not occur until the first quarter after the first closings occurred. I have seen 421a abatements as short as 7 years and as long as 25 years. There may be shorter or longer abatement's- but I have not observed them myself. While I do agree some of these abatement's could be a time bomb, many are not. It's just another component in determining what a fair price should be on a NYC apartment.

For those that insist that it's a ticking time bomb, no matter what- consider this situation: My Hamilton Heights apartment has a 25 year abatement and the unabated rate is obscenely low to begin with (probably reflecting the crime/decay that existed awhile back). My unabated tax amount is $27/month. The abated amount is $3/month. If the abatement were to disappear prematurely- would that really be a ticking time bomb? Percentage wise- it's huge- but in real dollars, I know people that spend more than that on Starbucks every week.

Ultimately, I feel my apartment was initially priced a bit high because the taxes were so low - but that was a component of my decision to buy my apartment. Much of the crime has disappeared since I signed the contract 4 years ago and many of the neighboring buildings have been cleaned up- so overall I feel I made the right decision.

25 years is a long time. That's a time bomb i'm willing to take a chance on.

semerum -unabated at $27/month is great!!!

The apartment I was interested in started going up after a couple of years and was to slowly increase until the full amount at around 10 years--at over $1000/per month for a simple one bedroom (and that, of course, would be in addition to my CCs, which started out around $600, but might also increase over the years).

Just illustrates the different deals out there.

A lot of the shorter abatement's (7 and 10 years), but not all, were in areas that really did not need stimulus to improve the area. This is part of the reason that the 421a program was changed. These abatement's are much more likely to be the ticking time bombs- but then again, many shouldn't have received the abatement in the first place.

My block was one of the worst in Hamilton Heights (according to the cops I spoke to) when I signed on the dotted line- but I looked around and observed all of the changes occurring in the neighborhood and felt that there was just too much momentum for things to remain as they were. I imagine my tax structure was priced reflecting the problems on the block. Today it is so much better. I still see some open air drug dealing, but the dog fighting, prostitutes, major drug dens, gang fights, etc are gone. The long, cheap abatement's were created to cater to examples like this.

Bkgirl, here is the answer to your question: your building is applying for a 421-a exemption (it is NOT an abatement! Why oh why will no one ever realize that?!). 25 year exemptions are granted to buildings that commenced construction BEFORE 12/30/2007 in what are known as NPP/REMIC areas. This means areas that are either part of the Neighborhood Preservation Program or are eligible for Rehabilitation Mortgage Insurance. Basically, areas of the city that were marginal in the 70s and 80s but may or may not be marginal now.

421-a exemptions are as-of-right. That means that if the project qualifies according to specific criteria and the developer follows the rules, the exemption will be granted; the city doesn’t have any discretion in the matter.

However, HPD’s 421-a unit is hugely backlogged and has been for years. Just because this building has not yet received the preliminary certificate does not mean that the developers are scumbags or lazy. It frequently takes more than a year, although savvy developers should be able to expedite it. The offering plan should include an signed statement from a tax attorney certifying that the project meets the legal requirements for 421-a and is eligible. If it doesn’t, that’s a huge red flag.

See if you can find out from your broker who the developer is using as a filing representative at HPD and post the name here – I can tell you whether they’re using a schmo or a serious guy.

'Bkgirl, here is the answer to your question: your building is applying for a 421-a exemption (it is NOT an abatement! Why oh why will no one ever realize that?!). '
Considering the exasperation I'd say you were quite helpful.
So...the difference between an abatement and an exemption is.......................................

"So...the difference between an abatement and an exemption is......................................."

An abatement is a reduction from the "true" taxation. An exemption is the negation of any rise in the "true" amount (i.e this property is exempt from raises in taxaation) (I'm WAYYYY oversimplifying here). So, exemptions in general are better than abatements, because with an abatement, it's a fixed amount off of a moving (higher) number, whereas the exemptions are keeping the number the same. (again, this is an extreme over simplification, especially because for many types in NYC there are both exemption and abatement components).

Everything you wanted to know about the tax abatement and why condos in 10 yrs will cost less than coops.

http://www.nytimes.com/2009/02/08/realestate/08COV.html?pagewanted=2&sq=421%20tax%20condo&st=nyt&scp=1

for numbers, read bottom of page 2 and beg of page 3. if you think that your condo is not in the $1-2M range, just take those numbers and divide by 2 or 3..... it's shocking

wellheythere is right, except that 421a is not necessarily as of right (depends on location). But you should push to see who is applying for the exemption; at a minimum they should have filed the application.

That NYT article is somewhat misleading. It refers to the 10 year exemption; most new construction have the 15 year exemption, which is 11 full years and 4 year phase out. You should verify the length of the benefit.

Thanks wellheythere! Your explanation was very helpful! In the offering plan they have a letter from a law firm saying that the project should be eligible. It's slated to be a 25 year exemption, going to 80% in year 22 and so forth in the last five years.

now consider what whill happen in 7 yrs when the first set of condos will lose all of the abatement and everyone will realize how much their taxes really are.... who will be buying condos then that have another 10-15 years when they see the consequences. noone has seen the consequences, so that is why people are not looking long term.

I remember in the late 80's and early 90's when a lot of the J-51 abatement/exemptions were expiring and every broker would say "oh, the Coop has already factored that into the mtc" and I knew they were flat out lying.

30yrs_RE_20_in_REO: good explanation. Another way to put it is that an exemption reduces the assessed value of your property that the tax rate is applied to, whereas an abatement reduces your annual tax liability by a specific dollar amount. So if you own a condo that the department of finance thinks is worth $1M, and you have a 90% exemption (100% building 0% land – approximately typical for 421-a exemptions usually but by no means always), then the practical assessed value of your condo for tax purposes is $100K, and the 14% tax rate or whatever it is these days is applied to $100K, resulting in $14K per year in taxes. Conversely, a $1M property with a $100K abatement will have a tax liability of $40K: $1M *14% tax rate - $100K tax abatement = $40K. Like 30yrs says, some tax incentive programs (J51 – substantial renovation or conversion from commercial to residential – is the only one I know of) includes both an exemption and abatement component. They don’t make this shit easy!

Bkgirl: which law firm wrote the letter? Also, do see if your broker can get the name of the 421-a expediter from the developer – a good expediter can mean the difference between waiting 2 more months or 18 more months, and I’ll be able to tell you which is which. 421-a is an area in which I am truly an expert, of which I am slightly more ashamed than proud.

Condojake: what do you mean that 421-a is not as of right in certain areas? Are you talking about the geographic exclusion area, where affordable housing or the purchase of affordable housing negotiable certificates are required to qualify? If so, I would argue that still counts as as-of-right: as long as the developer follows the rules, the city is required to grant the exemption and has no discretion to deny it.

wllheythere- Yes, I meant the GEA. Personally I don't think that means as of right since your 421a is conditional on meeting other approvals, but I see what you are saying. thanks.